Email of the day (3)
Comment of the Day

March 14 2011

Commentary by Eoin Treacy

Email of the day (3)

on meat prices:
"Thanks for your prompt response to my question about the UN food price index (Fullermoney 11 March).The meats index in your chart library I was referring to - at least I assume it is a meats index - is the Dow Jones-UBS Livestock Index from the "Commodity Indices" section. This shows a decline from 60 to 40 since the start of 2008, although that doesn't seem to fit with charts of individual meats (which I have now looked at) which all show higher levels than 2008, and of course it doesn't fit with the UN's meat index."

Eoin Treacy's view Thank you for clarifying which livestock index you were looking at. The various Dow-Jones UBS commodity indices, such as the Livestock Index you mention, reflect the cost of holding a passive long position in a futures market. The only time they will track the price is when interest rates are low, prices have risen enough to defray management costs and the market is trading in backwardation.

Since meat futures such as live cattle, feeder cattle, lean hogs and pork bellies are highly cyclical, due to the slaughter schedule, they tend to move from wide contango to wide backwardations at regular intervals. The roll costs from one contract to the next can therefore be quite large and this is reflected in the Index's price.

The individual futures price is a better indication of a particular commodity's performance.

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